MARKETING PLAN FOR ELF GAZ SAIGON COMPANY IN SELLING LPG AS FUEL TO TAXI MARKET IN HO CHI MINH CITY

MINISTRY OF EDUCATION & TRAINING HO CHI MINH CITY OPEN UNIVERSITY UNIVERSITEÙ LIBRE DE BRUXELLES SOLVAY BUSINESS SCHOOL MBMM PROGRAM TRAN HUU MINH MARKETING PLAN FOR ELF GAZ SAIGON COMPANY IN SELLING LPG AS FUEL TO TAXI MARKET IN HO CHI MINH CITY FINAL PROJECT MASTER IN BUSINESS & MARKETING MANAGEMENT Tutor: Dr NGUYEN DINH THO Ho Chi Minh City 2007 WARRANT STATEMENT This is my original work Any data, result or quote in the work is clearly identified TRAN HUU MINH ACKNOWLEDGEMENT This project is the result of contribution from many concerned organizations and people Therefore, I wish to express my gratitude to all concerned people and organizations for their supports and assistance during preparation of this project Firstly, I would like to acknowledge and thank the Professors, Members, Coordinators, Classmates of the MBMM program who have delivered valuable experience, knowledge and assistance during the course Secondly, I am grateful to Dr Nguyen Dinh Tho, who delivers his enthusiastic assistance, experience, guidance, advice to me during writing this final project Finally, I wish to thank my wife and family, who are the great foundation for my achievement TABLE OF CONTENT Page EXECUTIVE SUMMARY OF THE FINAL PROJECT INTRODUCTION OF THE FINAL PROJECT PART ELF GAZ SAIGON COMPANY’S DESCRIPTION 1.1 Introduction of ELF GAZ SAIGON Company 1.2 The market share of ELF GAZ SAIGON Company 1.3 Brief on business situation of ELF GAZ SAIGON Company 1.4 Development orientation of ELF GAZ SAIGON PART SITUATIONAL ANALYSIS 2.1 Overview of LPG used vehicle situation in Vietnam 2.2 Overview of taxi market in Ho Chi Minh city 2.3 Overview of Ho Chi Minh city 10 2.4 Environment, Politic, Law and regulations 11 2.5 Opportunities and threats on autogas domain 11 2.6 ELF GAZ SAIGON’s SWOT analysis 12 2.7 Competitors in autogas segment and substitute fuel 13 PART LPG AS FUEL FOR AUTOMOBILES AND ITS BENEFIT 15 3.1 What is LPG 15 3.2 Benefits of LPG 15 3.3 Evolution of Petrol and LPG selling price in 2006 18 PART STRATEGY OF ELF GAZ SAIGON COMPANY 20 4.1 Marketing objective 20 4.2 Marketing strategy 20 4.3 Marketing mix 21 4.4 Implementation 25 4.5 Evaluating methods for the project 26 CONCLUSION AND RECOMMENDATION 28 REFERENCE APPENDIX LIST OF APPENDIX Sales volume of the three sectors of EGS in 2006 Market share of main LPG companies in South Vietnam Retail selling price evolution of Petrol and LPG in 2006 Guideline used in the in-depth interview Summary of the in-depth interview The pricing formula Illustration of the pricing formula Explanation of Appendix and Evaluating methods for the project 10 Explanation of investment cost 11 Procedure of registration for circulating LPG fuel automobiles 12 Typical installation of auto – LPG station 13 Typical installation of auto – LPG station 14 Types of vehicle tanks put in automobiles 15 Scheme of bicarburetion equipment ABBREVIATION EGS : ELF GAZ SAI GON Company LPG : Liquefied Petroleum Gas CNG : Compressed Natural Gas WTO : World Trade Organization HCMC : Ho Chi Minh city LIST OF TABLE AND FIGURES A TABLE No Content Page The aggregate demand of LPG in Vietnam Quantity of LPG used vehicles and LPG dispensing station Petrol consumption volume of taxi market per year Conversion from Petrol into LPG consumption volume Sources of Emission in HCMC 16 Comparison between LPG and Gasoline, Diesel on 16 environmental benefit Economical benefit comparison between LPG and Petrol for 17 a taxi/month Cost saving in May, 2007 of taxi market in HCMC if using 17 LPG as fuel Economical benefit comparison on the retail selling price 19 between LPG and Petrol in the whole year 2006 10 Cost saving per km if using LPG as fuel in stead of Petrol 24 B FIGURES No Content Page Sales volume of EGS for last 05 years Retail selling price Evolution of petrol and LPG 18 EXECUTIVE SUMMARY OF THE FINAL PROJECT ELF GAS SAIGON COMPANY (EGS), founded in 1991, a joint-venture company, located in HCMC, South Vietnam, specializes in selling gas (LPG) over the whole country, but mainly, in South Vietnam It sells gas (LPG) to domestic sector for cooking and in industrial sector for industrial applications as ceramics, paint drying, metal smelting, glass, metallurgy etc The sales volume growth rate of EGS in some last years is sometimes negative or unremarkable while the aggregate demand of LPG in Vietnam is more and more increasing Therefore, in order to protect and develop the business, EGS Company must find out and target to some new markets in order to increase its sales volume and its market share in Vietnam One of the new and potential markets in Vietnam in the future is autogas market It means that EGS sells LPG as fuel to automobiles market The objective of this final project is to make the marketing plan for EGS to feasibly penetrate in selling LPG as fuel for the first 100 taxi fleet of only one taxi company in HCMC with the minimum LPG consumption volume committed by a taxi company in the five year contract term In order to be successful in this penetration, EGS has to provide its product with high quality and its package services as per its different way as follows: Product • LPG mixture of 70% butane + 30% propane with high quality, ± 10% molecule (less impurity and low pressure) Package service • To bear and to loan the whole converting cost for the 100 petrol-used taxis to dual- fuel taxis (taxis can run both fuels: LPG and Petrol) and the installation cost for a LPG dispensing station in the taxi Company ‘s garage with the commitment of the taxi owner for their minimum LPG consumption volume The estimated initial investment of this project is 130,500 USD for converting 100 petrol-fuel taxis to dual fuel taxis (the taxis can run both fuels of Petrol and LPG) and for installing an appropriate LPG dispensing station placed in a taxi company’s garage With estimation, these 100 taxis will consume around 1,683 tons of LPG in the year contract term, occupying 3% of sales volume of EGS in the whole year 2006 In order to evaluate this project if it is interesting or not, the author use some evaluating methods as NPV, IRR, Payback time and Break even sales in unit The result are shown below: • Earning after tax = 12, 245 USD each year except the first year (-5,584) • NPV = 8,053 USD > • IRR = 10% • Payback period = 3.8 years • Break even sales = 870 tons of LPG > capital opportunity cost (8.5%) In sum, this project is not only to be the precedent step for penetrating in the autogas market in HCMC, for increasing the sales volume of EGS but also to partly participate environmental protection in HCMC in particular and in Vietnam in general -1- INTRODUCTION OF THE FINAL PROJECT LPG used as fuel for both automobiles (autogas) and motorbikes is not a new matter in Vietnam, but unpopular in Vietnam during last time because of some reasons as lacking LPG distribution network, detailed legal framework, high cost for conversion and uneasy psychology of people So, to penetrate into the autogas market in Vietnam with such current above mentioned conditions is really difficult In order to penetrate into this autogas market feasibly, there must be gradual and appropriate marketing plan and this is the very objective of this final project A OBJECTIVE The objective of this final project is to make the marketing plan for EGS to feasibly penetrate in selling LPG as fuel for the first 100 taxi fleet of only one taxi company in HCMC with the minimum LPG consumption volume committed by a taxi company in the five year contract term In order to be feasible in this penetration, EGS has to provide its product with high quality and its package services as per its different way B SCOPE • Period: The project of 05 years from the year 2008 to 2012 • Niche : The first 100 taxi fleet of only one taxi company in HCMC C METHODOLOGY The final project study utilized the following data sources: • Internal data • External data : Secondary and primary data o Secondary : Public sources o Primary : In-depth interview (See in the Appendix 4) Philip Kotler; Gary Armstrong; John Saunders; Veronica Wong(2001), Part 3: Strategic Marketing Planning “Principles of Marketing”, Third European Editor, Financial times page 81-97 Jean Tondeur “ Market Research, BIS& Competitive Intelligent” (Course material), Solvay Business School, ULB C Website http://www.acb.com.vn/tygia/ http://www.answers.com http://www.cpv.org.vn http://www.dpi.hochiminhcity.gov.vn http://www.eec.moi.gov.vn http://www.hochiminhcity.gov.vn http://www.knowthis.com/tutorials/principles-of-marketing/settingprice/5.htm http://www.lpgaustralia.com.au http://www.petrolimex.com.vn 10 http://www.pso.hochiminhcity.gov.vn 11 http://www.tienphongonline.com.vn 12 http://www.trade.hochiminhcity.gov.vn 13 htpp://www.vneconomy.vn 14 http://www.vnexpress.net 15 http://www.vnn.vn APPENDIX Sales volume of the three sectors of EGS Company in 2006 Unit: Ton Sales volume of three sectors of EGS in 2006 1,368.30; 3% 16,511.30; 35% 28,791.50; 62% Domestic Semi-industry Bulk industry APENDIX Market share of main LPG companies in South Vietnam Unit: Ton Market share of main LPG companies in South Vietnam 30,000, 6% 50,000, 10% 140,000, 28% Enterprise of Petrovietnam Petrolimex 60,000, 12% Saigon Petro Petronas EGS Saigon gas 12,000, 2% 27,000, 5% 10,000, 2% 17,000, 3% 25,000, 5% 50,000, 10% Source: Internal data CN VT gas 47,000, 9% 40,000, 8% V gas BP Shell Others APPENDIX Retail selling price evolution of Petrol and LPG in 2006 (VAT included) Unit: VND/liter (VAT included) Retail selling price Retail selling price of Petrol (1) of LPG (2) January 9,500 8,348 February 9,500 8,879 March 9,500 8,129 April 11,000 7,286 May 11,000 7,712 June 11,000 7,712 July 11,000 8,212 August 12,000 8,666 September 11,000 8,841 October 10,500 8,060 November 10,500 7,878 December 10,500 8,156 Average 10,583 8,157 Year 2006 Source: (1): The retail selling price was announced at the Petrolimex gasoline stations in HCMC in the months of the year 2006 (2): Internal data APPENDIX : Guideline used in the in-depth interview Sub: Using LPG as fuel for taxis A.Taxi Company Company : Representative : Position : Address : Tel : Fax: Email: B Questionnaires How you think about using LPG as fuel for taxis? What difficulty when you using LPG as fuel instead of petrol? How you manage your taxi operation in shifting your taxi driver? Do you have garages in HCMC? Average petrol consumption volume/taxi/month in HCMC? Other? The author uses these questions to get necessary information for the project Population: Four taxi companies and twelve taxi drivers of four different taxi companies Method: In-depth interview through contacting and telephoning -Face to face interviewing: One taxi company and 12 taxi drivers -Telephone interviewing : Three taxi companies APPENDIX 5: Summary of the in-depth interview MAIN RESULT Qualitative (Need and expectation) Most of them pay attention to using LPG as fuel for taxis, but there are some difficulties that they want to be satisfied as: • They want to see the actual sample (an automobile) which is already converted from petrol to both petrol and LPG fuels • They want to see the actual parameters like economical benefit, operation of engines through actual test • They want to know how LPG distribution system for their taxis It means that how to get LPG for their taxis when fuel is empty • The legal formalities is not yet detailed in the autogas domain Quantitative • Average petrol consumption: 20 liters/taxi/day • Garages: Most of company has garages CONCLUSION With the above mentioned concerns, if satisfying their need and expectation, EGS has a lot opportunities to succeed in selling LPG for the taxi market in HCMC APPENDIX 6: The pricing formula Unit: USD/ton No Structure Note Contract price (CP) (a) Premium (b) Shipping fee from foreign country to EGS's premises Import duty (c) = 5% of + - Product price =1+2+3 - Margin contribution per ton (fixed) Unit margin Operation cost (fixed) Including storage cost, insurance, maintenance, wages, etc Transport cost Delivery to customer' s garage Selling price (VAT excluded) =4+5+6+7 - Based on the international contract price as announced by Saudi Arabia Amount 80 150 30 APPENDIX 7: Illustration of the pricing formula Unit: USD/ton No Structure Note Contract price (CP) (a) Premium, CIF (b) Shipping fee from foreign country to EGS's premises Import duty (c) = 5% of + 32.5 Product price =1+2+3 683 Margin contribution per ton (fixed) Unit margin 150 Operation cost (fixed) Including storage cost, insurance, maintenance, wages, , etc Transport cost Delivery to customer' s garage Selling price (VAT excluded) = + + +7 Based on the international contract price as announced by Saudi Arabia Amount 570.5 80 30 867 APPENDIX 8: Explanation of Appendix and • (a): The CP in May, 2007: Butane = 575 USD/ton ; Propane = 560 USD/ton (source: www.lpgaustralia.com.au) The mixture of LPG that EGS sells to a taxi company is 70% butane + 30% propane So, we have CP= (70% x 575) + (30% x 560) = 570.5 USD/ton • (b): EGS signs the long term contract with its partner for shipping of LPG to EGS’s premises • (c): The current import duty of the State • With this pricing structure, All elements of this pricing structure is fixed except CP because CP is based on the monthly LPG price announcement of Saudi Arabia 05 May, 2007 APPENDIX : Evaluating methods for the project PARAMETER CALCULATION OF THE PROJECT (1) Contract duration years (2) Delivery distance with return km 80 PROFIT & LOST Minimum Volume( MT) Year (3) LPG mixture (%+%) bupro 70+30 (4) LPG selling price (average) USD/ton (5) Payment condition days (6) Contribution margin in unit USD/ton (7) Total investment for 100 taxis USD (8) Operation cost USD/ton 30 (9) Transport cost USD/ton (10) Capital opportunity cost % 8.5% Tax (11) Actualization rate % 7.5% Earning after tax (12) Unit credit cost (UCC) (**) USD/ton 900 Growth margin 30 150 130,500 Unit 187 374 374 374 374 Year1 (*) Year2 Year3 Year4 Year5 28,050 56,100 56,100 56,100 56,100 Transport cost -748 -1,496 -1,496 -1,496 -1,496 Operation cost -5,610 -11,220 -11,220 -11,220 -11,220 Credit cost -1,176 -2,352 -2,352 -2,352 -2,352 -26,100 -26,100 -26,100 -26,100 -26,100 -5,584 14,932 14,932 14,932 14,932 -2,688 -2,688 -2,688 -2,688 -5,584 12,245 12,245 12,245 12,245 Tax 18% Depreciation Profit from operation 6.3 CASH FLOW STATEMENT NPV A 8,053 USD USD Minimum Volume( MT) Year 187 374 374 374 374 Year1 Year2 Year3 Year4 Year5 B IRR 10% % C Payback time 3.8 years Growth margin 28,050 56,100 56,100 56,100 56,100 D Break even 870 tons Transport cost -748 -1,496 -1,496 -1,496 -1,496 Operation cost -5,610 -11,220 -11,220 -11,220 -11,220 Credit cost -1,176 -2,352 -2,352 -2,352 -2,352 -2,688 -2,688 -2,688 -2,688 Note Tax (*) The volume of the year is only a half of the following years Investment -130,500 because of time for taxi converting and testing Free Cash flow -130,500 20,516 38,345 38,345 38,345 38,345 (**) UCC = (4) x (10)/365 days x (5) Present value -130,500 19,085 33,181 30,866 28,712 26,709 -111,415 -78,234 -47,368 -18,656 8,053 Cash flow accumulated APPENDIX 10: Explanation of investment cost 05 May, 2007 TOTAL INVESTMENT FOR 100 TAXIS Total Investment for 100 taxi = + + + Equipment 01 LPG storage tank with capacity of 5000kg 01 LPG Pump USD 130,500 USD 25,500 11,500 4,000 01 LPG Dispenser (Single hose) Mechanical Works (Installation of pipes, fittings, sprinkler system 10,000 USD 5,000 USD 70,000 USD 30,000 Testing and commissioning) Auto 's conversion cost Converter kids (100 kids) Vehicle tank (100 tanks) Related accessories (100 sets) Converting cost (Installation and design cost) (Inspection cost) Source: (1), (2): Internal data (3) : Anh Thai Company Ltd, HCMC (4) : Technology Design Center of HCMC Polytechnic University APPENDIX 11 Procedure of registration for circulating LPG fuel automobiles CUSTOMER CONVERTING FACTORY LOCAL REGISTRATION DEPARTMENT Source : Advertising on leaflet of Petrovietnam gas (Công Ty Chế biến Và Kinh Doanh Các Sản Phẩm Khí) APPENDIX 12 : Typical installation of auto-LPG station Source: Seminar, Total (Philippines) Corporation, 17th November, 2005 APPENDIX 13: Typical installation of auto-LPG station Source: Seminar, Total (Philippines) Corporation, 17th November, 2005 APPENDIX 14: Types of vehicle tanks put in automobiles The tank: installation Source: BRC GAS EQUIPMENT, Italia; SUPER CENTRAL GAS CO., LTD , Bangkok, Thailand The tank: installation APPENDIX 15 Scheme of bicarburetion equipment - Électrovanne GPL - Détendeur - Vaporisateur - Mélangeur - Circuit de réchauffage - Pompe essence - Électrovanne essence - Commutateur GPL ou essence Source : Seminar, Total (Philippines) Corporation, 17 November, 2005